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Acceleration
The right of the mortgagee (lender) to demand the immediate repayment
of the mortgage loan balance upon the default of the mortgagor (borrower),
or by using the right vested in the Due-on-Sale Clause.
Adjustable Rate Mortgage (ARM)
(Also known as Variable Rate Mortgage) Is
a mortgage in which the interest rate is adjusted periodically based on
a pre-selected index.
Adjustment
Interval- On an adjustable rate mortgage, the time between changes
in the interest rate and/or monthly payment, typically one, three or five
years, depending on the index.
Amortization-
To pay off a mortgage in equal installments over the life of the loan.
Annual
Percentage Rate (APR)- An interest rate reflecting the cost of
a mortgage as a yearly rate. This rate is likely to be higher than the
stated note rate or advertised rate on the mortgage, because it takes
into account point and other credit cost. The APR allows home buyers to
compare different types of mortgages based on the annual cost for each
loan.
Appraisal-
An estimate of the value of property, made by a qualified professional
called an appraiser.
Assessment-
A local tax levied against a property for a specific purpose, such as
a sewer or street lights.
Assumption-
The agreement between buyer and seller where the buyer takes over the
payments on an existing mortgage from the seller. Assuming a loan can
usually save the buyer money since this is an existing mortgage debt,
unlike a new mortgage where closing cost and new, probably higher, market-
rate interest charges will apply.
Balloon
Mortgage- Usually a short-term fixed-rate loan which involves small
payments for a certain period of time and one large payment for the remaining
amount of the principal at a time specified in the contract.
Blanket
Mortgage- A mortgage covering two or more pieces of property
as security for the same mortgage. These loans are typically used
for investors who purchase rental property.
Borrower
(Mortgagor)- One who applies for and receives a loan in the form
of a mortgage with the intention of repaying the loan in full.
Broker-
An individual in the business of assisting in the arrangement of funds
or negotiating contracts for a client. Brokers usually charge a fee or
receive a commission for their services.
Buy-down-
When the lender offers a lower interest rate during the first few years
of the loan. While payments are initially low, they will increase within
the first couple of years. Typically one point a year with a two to three
point cap.
Cash
Flow - The amount of cash derived over a certain period of time
from an income producing property. The cash flow should be large enough
to pay the expenses of the income producing property (mortgage payment,
maintenance, utilities, etc.).
Caps
(interest)- Consumer safeguards which limit the amount the interest
rate on an adjustable rate mortgage may change per year and/or the life
of the loan.
Caps
(payment)- Consumer safeguards which limit the amount monthly payments
on an adjustable rate mortgage may change.
Closing-
The meeting between the buyer, seller and lender or their agents where
the property and funds legally change hands. Also called settlement.
Closing
Costs- see Settlement Costs.
Commitment-
An agreement, often in writing, between a lender and a borrower to loan
money at a future date subject to the completion of paper work or compliance
with stated conditions.
Construction
loan- A short term interim loan to
pay for the construction of buildings or homes. These are usually designed
to provide periodic disbursements to the builder as he progresses.
Contract
Sale or Deed - A contract between purchaser and a seller of real
estate to convey title after certain conditions have been met. It is a
form of installment sale.
Conventional
Loan- A mortgage not insured by FHA or guaranteed by the VA.
Credit
Report- A report documenting the credit history and current status
of a borrower's credit standing.
Debt-to-Income
Ratio- The ratio, expressed as a percentage, which results when
a borrower's monthly payment obligation on long-term debts is divided
by his or her gross monthly income. See housing expenses-to-income ratio.
Default-
Failure to make the monthly payments on a mortgage.
Deferred
Interest- When a mortgage is written with a monthly payment that
is less than required to satisfy the note rate, the unpaid interest is
deferred by adding it to the loan balance. See negative amortization.
Delinquency-
Failure to make payments on time. This can lead to foreclosure.
Discount
Point- See Point.
Down
Payment- Money paid to make up the difference between the purchase
price and the mortgage amount.
Earnest
Money- Money given by a buyer to a seller as part of the purchase
price to bind a transaction or assure payment.
Equal
Credit Opportunity Act (ECOA)- Is a federal law that requires lenders
and other creditors to make credit equally available without discrimination
based on race, color, religion, national origin, age, sex, marital status
or receipt of income from public assistance programs.
Equity-
The difference between the fair market value and current debt on the property,
also referred to as the owner's interest.
Escrow-
See Impound.
Federal
Home Loan Mortgage Corporation (FHLMC) -also called "Freddie Mac",
Is a quasi-governmental agency that purchases conventional mortgage
from insured depository institutions and HUD- approved mortgage bankers.
Federal
National Mortgage Association (FNMA) -also know as "Fannie Mae"
A tax-paying corporation created by Congress that purchases and
sells conventional residential mortgages as well as those insured by FHA
or guaranteed by VA. This institution, which provides funds for one in
seven mortgages, makes mortgage money more available and more affordable.
Fixed
Rate Mortgage- An interest rate which
will remain the same throughout the term of the mortgages for the original
borrower.
Foreclosure-
A legal process by which the lender or the seller forces a sale of a mortgaged
property because the borrower has not met the terms of the mortgage. Also
known as a repossession of property.
Guaranty-
A promise by one party to pay a debt or perform an obligation contracted
by another if the original party fails to pay or perform according to
a contract.
Hazard
Insurance- Insurance required by the lender to protect your property
against losses such as fire, storm etc.
Housing
Expenses-to-Income Ratio- The ratio, expressed as a percentage,
which results when a borrower's housing expenses are divided by his/her
gross monthly income. See debt-to-income ratio.
Impound-
That portion of a borrower's monthly
payments held by the lender or servicer to pay for taxes, hazard insurance,
mortgage insurance, and other items as they become due. Also known as
escrow.
Index-
A published interest rate against which lenders measure the difference
between the current interest rate on an adjustable rate mortgage and that
earned by other investments (such as one- three-, and five-year U.S. Treasury
security yields, the monthly average interest rate on loans closed by
savings and loan institutions and the monthly average costs-of-funds incurred
by savings and loans), which is then used to adjust the interest rate
on an adjustable mortgage up or down.
Interim
Financing- A construction loan made during completion of a building
or a project. A permanent loan usually replaces this loan after completion.
Investor-
A money source for a lender.
Jumbo
Loan- A loan which is larger (more
than $275,000) than the limits set by the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation. Because jumbo loans cannot
be funded by these two agencies, they usually carry a higher interest
rate.
Lien-
A claim on a piece of property for the payment or satisfaction of a debt
or obligation.
Loan-to-Value
Ratio- The relationship between the
amount of the mortgage loan and the appraised value of the property expressed
as a percentage.
Margin-
The amount a lender adds to the index
on an adjustable rate mortgage to establish the adjusted interest rate.
Market
Value- The highest price that a buyer
would pay and the lowest price a seller would accept on a property. Market
value may be different from the price a property could actually be sold
for at a given time.
Mortgagee-
The lender.
Mortgagor-
The borrower.
Non
Assumption Clause- A statement in
a mortgage contract forbidding the assumption of the mortgage without
the prior approval of the lender.
Origination
Fee -The fee charged by a broker/lender
to prepare loan documents, make credit checks, order and inspect property
appraisal, order title search request, schedule closing, etc..
Permanent
Loan- The long term mortgage, usually
ten years or more. Also called an "end loan."
PITI
- Principal, Interest, Taxes and Insurance, Also called monthly housing
expense.
Points
(loan discount points)-Prepaid interest assessed at closing by
the lender. Each point is equal to 1 percent of the loan amount (e.g.,
two points on a $100,000 mortgage would cost $2,000).
Power
of Attorney-A legal document authorizing one person to act on behalf
of another.
Prepaid
Expenses- Necessary to create an escrow account or to adjust the
seller's existing escrow account. Can include taxes, hazard insurance,
private mortgage insurance and special assessments.
Prepayment-A
privilege in a mortgage permitting the borrower to make payments in advance
of their due date.
Prepayment
Penalty- Money charged for an early repayment of debt. Prepayment
penalties are allowed in some form (but not necessarily imposed) in many
states.
Principal-
The amount of debt, not counting interest, left on a loan.
Private
Mortgage Insurance (PMI)-Required by lender when the borrower's
down payment is less than 20 percent. Private Mortgage Insurance will
usually require an initial premium payment and may require an additional
monthly fee depending on you loan's structure.
Realtor-
A real estate broker or an associate holding active membership in a local
real estate board affiliated with the National Association of Realtors.
Recision-The
cancellation of a contract. With respect to mortgage refinancing, the
law that gives the homeowner three days to cancel a contract once it is
signed if the transaction uses equity in the home as security.
Recording
Fees-Money paid to the lender for recording a home sale with the
local authorities, thereby making it part of the public records.
Refinance-Obtaining
a new mortgage loan on a property already owned. Often to replace existing
loans on the property.
RESPA
(Real Estate Settlement Procedures Act) - A federal law that allows
consumers to review information on known or estimated settlement cost
once after application and once prior to or at a settlement. The law requires
lenders to furnish the information after application only.
Second
Mortgage-A mortgage made subsequent to another mortgage and subordinate
to the first one.
Servicing-All
the steps and operations a lender performs to keep a loan in good standing,
such as collection of payments, payment of taxes, insurance, property
inspections and the like.
Settlement/Settlement
Costs-(also known as closing costs) The cost a borrower pays to
the lender to perform the services to obtain financing. Closing Cost usually
include: an origination fee (paid to broker/lender) discount points, appraisal,
title search, insurance, survey, taxes, deed recording, credit report,
attorney fee and other costs assessed at settlement. These are usually
about 3% to 6% of the mortgage amount.
Simple
Interest-Interest which is computed only on the principle balance.
Survey-A
measurement of land, prepared by a registered land surveyor, showing the
location of the land with reference to know points, its dimensions, and
the location and dimensions of any buildings.
Sweat
Equity-Equity created by a purchaser performing work on a property
being purchased.
Title-A
document that gives evidence of an individual's ownership of property.
Title
Insurance-A policy, usually issued by a title insurance company,
which insures a home buyer against errors in the title search. The cost
of the policy is usually a function of the value of the property, and
is often borne by the purchaser and/or seller. Policies are also available
to protect the lender's interests.
Title
Search- An examination of municipal records to determine the legal
ownership of property, usually performed by a title company.
Truth-In-Lending-A
federal law requiring disclosure of the Annual Percentage Rate to home
buyers shortly after they apply for the loan. Also known as Regulation
Z.
Underwriting-The
decision whether to make a loan to a potential borrower based on credit,
employment, assets, and other factors.
Variable
Rate Mortgage (VRM)-See adjustable rate mortgage.
Verification
of Deposit (VOD)-A document signed by the borrower's financial
institution verifying the status and balance of his/her financial accounts.
Verification
of Employment (VOE)- A document signed by the borrower's employer
verifying his/her position and salary.
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